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When looking at a company’s finances, investors use different factors to help them decide – one of the main factors is called Trailing Twelve Months (TTM).
Trailing Twelve Months or TTM allows investors to see a company’s financial performance over the past 12 months, providing a useful snapshot of its current standing.
Investors can use this tool to compare how the company is doing now with how it has done in the past -as this could help them make better decisions.
What is Trailing Twelve Months?
Trailing twelve months (TTM) is a financial metric used to evaluate a company’s performance over the past 12 months.
The TTM metric is commonly used by investors, analysts, and financial professionals to gain a more comprehensive understanding of a company’s current financial performance.
The TTM period is a rolling window that moves forward over time, allowing investors to continuously track a company’s performance.
The metric can be calculated for various financial indicators such as revenue, earnings, or cash flow, and is often used to assess a company’s growth rate or compare its latest performance to previous periods.
How Trailing Twelve Months Works
Trailing Twelve Months (TTM) is a way to measure how a company has been doing over the last 12 months. It looks at things like revenue and net income.
The result shows how well the company did in those 12 months. This number gets updated regularly so companies can see how they are doing now.
If a company wants to calculate its TTM revenue on June 30th, it has to include the revenue figures for the period between July 1st of the previous year and June 30th of the current year.
As the months pass by so does the TTM period. This helps investors and analysts understand how a company’s money is being used over a longer period of time.
Importance of Trailing Twelve Months
Trailing twelve months (TTM) is an important metric in financial analysis because it provides investors and analysts with a snapshot of a company’s current financial performance over a period of time.
By examining a company’s financial indicators over the most recent 12-month period, investors can gain insight into how the company has been performing and use this information to make more informed investment decisions.
The TTM period is particularly useful because it helps to capture recent trends and changes in a company’s financial performance, which could be missed if only looking at a single quarterly or annual report.
Additionally, TTM can be used to compare a company’s current performance to historical periods, enabling investors to identify areas of growth or decline.
In addition to investors, it also helps businesses to understand how their operations are performing over time, and make adjustments to optimize their financial performance.
How to Calculate Trailing Twelve Months
The formula for calculating TTM is simple
TTM = Q (most recent) + Q (1 quarter ago) + Q (2 quarters ago) + Q (3 quarters ago)
Q (most recent): This is the most recent quarter’s financial information, such as revenue or net income.
Q (1 quarter ago): This is the same type of financial information from one quarter ago.
Q (2 quarters ago): This is the same type of financial information from two quarters ago.
Q (3 quarters ago): This is the same type of financial information from three quarters ago.
By adding each quarter’s results together, investors and analysts can get a comprehensive understanding of how the company has been performing over the last 12 months.
Example of Trailing Twelve Months
For example, let’s say a company XYZ wanted to calculate its TTM revenue as of June 30th. They would add the revenue from each quarter over the previous 12 months, starting with April 1st (Q1) and ending on March 31st (Q4).
So the first quarter’s (Q1) figures would be added to the second quarter’s (Q2), then the third quarter’s (Q3), and finally the fourth quarter’s (Q4) results.
Let’s say, company XYZ made $5 million in the first quarter (Q1), $7 million in the second quarter (Q2), $6 million in the third quarter (Q3), and $8 million in the fourth quarter (Q4).
The total TTM revenue for company XYZ as of June 30th would be $26 million ($5M + $7M + $6M + $8M).
By looking at this figure, investors and analysts can get a better idea of how the company is performing over the previous 12-month period.
Conclusion
The Trailing Twelve Months (TTM) is a very useful metric that helps investors and analysts understand a company’s present financial performance over the last year. It reflects the recent patterns and developments in a company’s financial performance, giving investors an accurate overview of its current status. The same goes for the company itself, as it can use the TTM metric to identify areas of growth or decline.
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